Policy stimulus

The market sell-off continued in February with the MSCI China Total Return Index losing 3.9%. Global markets were caught off guard by Russia’s surprise invasion of Ukraine.

Fund Commentary
18 Mar 2022

The market sell-off continued in February with the MSCI China Total Return Index losing 3.9%. Global markets were caught off guard by Russia’s surprise invasion of Ukraine.

Safe-haven assets such as US treasuries and gold were bid up, while oil and commodity prices spiked in a knee-jerk reaction. The Brent oil price hit $100 per barrel on the back of supply disruption concerns, further deepening investors’ inflation fears.

Domestically, the regulator’s renewed scrutiny on the Internet sector was another blow to the market. Sector-wise, Energy, Shipping and Banks outperformed while Internet and Technology stocks underperformed the market.

Just as investors began to believe the policy overhang in the Internet sector was drawing to a close following a year-long clampdown, the government ordered food delivery platform operators to cut fees in order to reduce the financial burden on businesses. Banks were also told to report their exposure to Ant Group, Alibaba’s fintech subsidiary, for further investigation.

Biotech stocks were sold down on the news that the US added 33 Chinese entities to their red flag list, including WuXi Biologics’ inclusion on the Unverified List. Despite WuXi Biologics’ clarification that it was business as usual, investors still sold first and asked questions later.

Macro data in the first two months has been better than expected. Retail sales growth was respectable at 6.7% despite a sporadic COVID resurgence across the country. Inflation remained in check with the CPI at 0.9% and the PMI also remained marginally above the expansion threshold at 50.2.

Stabilising growth is the top priority for the government this year. We expect more policy stimulus to come should the government see downside risk in the economy.

The Strategic China Panda Fund declined 4.1% during the month. We expect market volatility to remain in the near term, given the fluid geopolitical tension between Ukraine and Russia, and higher than expected inflation in the US.

As always, we invite investors and prospective investors, to contact us should they wish to understand our views on the current situation and the positions held in the portfolio. Please do not hesitate to contact us for further information.

Adam TurbervilleAdam Turberville
Director
+44 1481 742380
a.turberville@ericsturdza.com

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The views and statements contained herein are those of LBN Advisers Limited in their capacity as Investment Adviser to the Fund as of 17/03/2022 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.